Reminder: Pay Your Second Tax Installment by 31 July 2024

The second payment on account for the tax year 2023/24 is due by 31 July 2024. If you expect your tax liability for that year to be lower than initially calculated, you can claim to reduce your payments accordingly. This helps retain more cash in your pocket. However, there are important considerations to keep in mind.

Payments on Account: What You Need to Know

Under the self-assessment system, you may need to make advance payments on account for the next year’s tax liability. Typically, the deadline for paying a calculated and declared tax liability is 31 January following the tax year end (approximately nine months later). However, if your outstanding tax exceeds ￡1,000 and represents more than 20% of your total tax liability for the year (including deducted amounts at source), you are required to make two advance payments on account for the next year's tax bill.

These advance payments are each 50% of the outstanding amount from the prior year, with any differences reconciled on the next tax return. The second of these payments is due by 31 July, and you may have already received a reminder.

Reducing Payments on Account

If you anticipate a lower tax bill for the next year due to decreased income or higher PAYE deductions, you can claim to reduce your payments.

Example: Your 2022/23 tax return resulted in payments on account for 2023/24 being set at ￡2,500 each. However, you expect a lower liability due to additional business expenses, anticipating a total liability of ￡3,000. You can thus reduce the payments to ￡1,500 each. This adjustment means ￡1,000 of your January 2024 payment will be reallocated to the July 2024 payment, and you will only need to pay ￡500 by the end of this month.

Beware of Underestimating

Some individuals may be tempted to significantly reduce their payments on account, even to nil. While there are no late payment penalties for these payments, interest will be retrospectively applied to the difference between the paid and originally calculated amounts.

Ensure your payment adjustments are accurate to avoid unnecessary interest charges.